Review
Financial management
Liquidity and cash management
The strength and liquidity of the balance sheet is fundamental to our proposition as an insurer of choice, providing us with the ability to respond quickly to claims, particularly relevant in the event of a large catastrophic loss such as Hurricane Ike. Current difficulties in investment markets, particularly the illiquidity of many financial assets, provide an additional challenge in this regard. However, Amlin’s investment management approach and capital strength, as described above, means the Group can absorb the losses from the worst of our single event realistic disaster scenarios without suffering from liquidity constraints.
Bank facilities augment the working capital strength of the Group. On 3 September 2008, Amlin entered into a secured US$200 million LOC working capital facility which is also available for five years from the date of signing. The facility allows Syndicate 2001 to fund its US regulatory requirements by way of LOC rather than investments and therefore reduces funding pressures at the time of a major catastrophe loss. If drawn, security is provided by a fixed charge over a portfolio of assets. The facility is currently undrawn.
On 23 October 2008 Amlin Bermuda extended its existing secured US$200 million LOC facility to 31 December 2009. The facility is secured by a fixed charge over a portfolio of assets. As at 31 December 2008 US$36.8 million LOCs had been issued.
Efficient cashflow management is a key source of value to an insurer. We retain premiums for an average of approximately three years before claims are settled. On large claims, where reinsurance recoverables are due, we have to pay out the claim before collection is made from reinsurers and rapid reinsurance response is important. Accordingly, strong credit management of premiums and reinsurance collectibles improves our performance.
The rapid collection of reinsurance following settlement of hurricane claims is a key priority for our reinsurance team. At the year end reinsurance balances totalled £532.1 million with collateral in place of £104.6 million (2007: £372.8 million with collateral in place of £28.4 million) representing the impact of Hurricane Ike and Gustav. The credit quality of the debt is strong, as shown in the chart below.
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